[Federal Register Volume 89, Number 137 (Wednesday, July 17, 2024)]
[Notices]
[Pages 58218-58221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15671]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100501; File No. SR-CboeEDGX-2024-042]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fees Schedule

July 11, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 1, 2024, Cboe EDGX Exchange, Inc. (``Exchange'' or ``EDGX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to 
amend its Fees Schedule. The text of the proposed rule change is 
provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule, effective July 1, 
2024. The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 17 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 15% of the market share.\3\ 
Thus, in such a low-concentrated and highly competitive market, no 
single options exchange, including the Exchange, possesses significant 
pricing power in the execution of option order flow. The Exchange 
believes that the ever-shifting market share among the exchanges from 
month to month demonstrates that market participants can shift order 
flow or discontinue to reduce use of certain categories of products, in 
response to fee changes. Accordingly, competitive forces constrain the 
Exchange's transaction fees, and market participants can readily trade 
on competing venues if they deem pricing levels at those other venues 
to be more favorable.
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    \3\ See Cboe Global Markets U.S. Options Market Monthly Volume 
Summary (June 26, 2024), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange's Fees Schedule sets forth standard rebates and rates 
applied per contract. For example, the Exchange provides standard 
rebates ranging from $0.01 up to $0.22 per contract for Customer orders 
in Penny and Non-Penny Securities. The Fee Codes and Associated Fees 
section of the Fees Schedule also provides for certain fee codes 
associated with certain order types and market participants that 
provide for various other fees or rebates. For example, the Exchange 
provides a rebate of $0.01 per contract for Customer orders that remove 
liquidity, in Non-Penny Securities, yielding fee code NC; provides a 
rebate of $0.01 per contract for Customer orders that remove liquidity, 
in Penny Securities, yielding fee code PC; and provides a rebate of 
$0.01 per contract for Customer (contra Non-Customer) orders that add 
liquidity, yielding fee code CA.
Customer Volume Tiers
    The Exchange proposes to amend Footnote 1 (Customer Volume Tiers), 
applicable to orders yielding fee codes PC, NC, and CA.\4\ Pursuant to 
Footnote 1 of the Fee Schedule, the Exchange currently offers five 
Customer Volume Tiers that provide rebates between $0.10 and $0.22 per 
contract for qualifying customer orders yielding fee codes PC, NC and 
CA where a Member meets required criteria. The Exchange proposes to 
amend this Customer Volume Tier program to add a new Customer Volume 
Tier, specifically a Customer Cross-Asset Tier, which requires 
participation on the Exchange's equities platform (``EDGX Equities''). 
Under the proposed tier, the Exchange would provide a rebate of $0.18 
per contract if a Member has (1) an ADV in Customer orders of >=1.75% 
of average OCV; (2) an ADAV in Simple Customer Non-Crossing orders 
yielding fee code CA >=0.55% of average OCV; (3) an ADV in Firm orders 
>=0.20% of average OCV; and (4) has on EDGX Equities an ADAV >=0.45% of 
average TCV.\5\
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    \4\ As part of the proposed rule change, the Exchange proposes 
to amend ``Required Criteria'' language in Tiers 3, 4, and 5 to 
conform to new proposed language in Tier 6 and list ``yielding fee 
code CA'' directly within the requirements (rather than in a 
parenthetical).
    \5\ The Exchange notes that the Fee Codes and Associated Fees 
table already includes a reference to a rebate of $0.18 for fee 
codes PC and NC (as such amount is also offered under Tier 4 of the 
Customer Volume Tiers) and as such, no further updates are required 
with respect to the Fee Codes and Associated Fees table.
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    The Exchange believes that the proposed changes to the Customer 
Volume Tier program are designed overall to incentivize more Customer 
order flow and to direct an increase of order flow to the EDGX Options 
Order Book. The Exchange believes that an increase in Customer order 
flow and overall order flow to the Exchange's Book creates more trading 
opportunities, which, in turn attracts Market Makers. A resulting 
increase in Market Maker activity may facilitate tighter spreads, which 
may lead to an additional increase of order flow from

[[Page 58219]]

other market participants, further contributing to a deeper, more 
liquid market to the benefit of all market participants by creating a 
more robust and well-balanced market ecosystem.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes the proposed rule 
change is consistent with Section 6(b)(4) of the Act,\9\ which requires 
that Exchange rules provide for the equitable allocation of reasonable 
dues, fees, and other charges among its Members and other persons using 
its facilities.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
    \9\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed change to the 
Customer Volume Tier program is reasonable because it provides an 
additional opportunity for Members to receive a rebate by providing 
alternative criteria for which they can reach. The Exchange notes that 
volume-based incentives and discounts have been widely adopted by 
exchanges,\10\ including the Exchange,\11\ and are reasonable, 
equitable and non-discriminatory because they are open to all Members 
on an equal basis and provide additional benefits or discounts that are 
reasonably related to (i) the value to an exchange's market quality and 
(ii) associated higher levels of market activity, such as higher levels 
of liquidity provision and/or growth patterns. Additionally, as noted 
above, the Exchange operates in a highly competitive market. The 
Exchange is only one of several options venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. Competing options exchanges offer 
similar tiered pricing structures to that of the Exchange, including 
schedules of rebates and fees that apply based upon Members achieving 
certain volume and/or growth thresholds. These competing pricing 
schedules, moreover, are presently comparable to those that the 
Exchange provides.
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    \10\ See e.g., Cboe BZX U.S. Options Exchange Fee Schedule, 
Footnote 1, Customer Penny Add Volume Tiers, which provide enhanced 
rebates between $0.35 and $0.53 per contract for certain Customer 
Penny orders where Members meet certain volume thresholds.
    \11\ See e.g., Cboe EDGX U.S. Options Exchange Fee Schedule, 
Footnote 2, Market Maker Volume Tiers which provide enhanced rebates 
for certain Market Maker Penny and Non-Penny orders where Members 
meet certain volume thresholds.
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    Moreover, the Exchange believes the proposed Customer Cross-Asset 
Tier is a reasonable means to encourage Members to increase their 
liquidity on the Exchange and also their participation on EDGX 
Equities. The Exchange believes that adopting tiers with alternative 
criteria to the existing Customer Volume Tiers may encourage those 
Members who could not previously achieve the criteria under existing 
Customer Volume Tiers to increase their order flow on EDGX Options and 
Equities.
    For example, the proposed Customer Cross-Asset Tier would provide 
an opportunity for Members who have an ADAV in Simple Customer Non-
Crossing orders yielding fee code CA of at least 0.55% of average OCV, 
but less than the more stringent 0.65% of average OCV (the requirement 
under current Tier 4) or the more stringent 1.25% of average OCV (the 
requirement under current Tier 5) orders of at least 0.20% of average 
OCV and have an ADV in Customer orders of at least 1.75% of average 
OCV, but less than the more stringent 2.00% of average OCV (the 
requirement under current Tier 5), to receive a higher rebate than they 
may currently receive but equal or slightly lower than the rebate they 
would receive for reaching the more stringent criteria under current 
Tiers 4 and 5, if they also meet the other threshold requirements, 
including the threshold requirement based on EDGX Equities 
participation. Similarly, for Members that participate on both EDGX 
Options and Equities, and do not currently meet the thresholds under 
current tiers, but can or do meet the proposed equities thresholds, the 
proposed tier may incentivize those participants to grow their options 
volume in order to receive enhanced rebates. Increased liquidity 
benefits all investors by deepening the Exchange's liquidity pool, 
offering additional flexibility for all investors to enjoy cost 
savings, supporting the quality of price discovery, promoting market 
transparency and improving investor protection. The Exchange also 
believes that proposed enhanced rebate is reasonable based on the 
difficulty of satisfying the tier's criteria and ensures the proposed 
rebate and thresholds appropriately reflect the incremental difficulty 
to achieve the existing Customer Volume Tiers.
    The proposed enhanced rebate amounts also do not represent a 
significant departure from the enhanced rebates currently offered under 
the Exchange's existing Customer Volume Tiers. Indeed, the proposed 
enhanced rebate amount under the proposed Customer Cross-Asset Tier 
($0.18) is incrementally higher than current Tiers 1, 2, and 3 ($0.10, 
$0.13, and $0.17, respectively), which the Exchange believes offer 
slightly less stringent criteria than the proposed Customer Cross-Asset 
Tier, but is incrementally lower than the rebate offered under existing 
Tier 5 ($0.22), which the Exchange believes is more stringent than the 
proposed criteria under the proposed Customer Cross-Asset Tier. 
Similarly, the proposed enhanced rebate amount under the proposed 
Customer Cross-Asset Tier ($0.18) is the same as current Tier 4 
($0.18), which the Exchange believes reflects a similar level of 
difficulty but using alternative types of criteria. The Exchange also 
notes that the proposed rebate remains within the range of the enhanced 
rebates offered under the current Customer Volume Tiers (i.e., $0.10-
$0.22).
    As noted above, the Exchange believes that the proposed changes to 
the Customer Volume Tier program will incentivize more Customer order 
flow and direct an increase of order flow to the EDGX Options Order 
Book. The Exchange believes that an increase in Customer order flow and 
overall order flow to the Exchange's Book creates more trading 
opportunities, which, in turn attracts Market Makers. The Exchange 
notes that increased Market Maker activity, particularly, facilitates 
tighter spreads and an increase in overall liquidity provider activity, 
both of which signal additional corresponding increase in order flow 
from other market participants, contributing towards a robust, well-
balanced market ecosystem. Indeed, increased overall order flow 
benefits investors across both the Exchange's options and equities 
platforms by

[[Page 58220]]

continuing to deepen the Exchange's liquidity pool, potentially 
providing even greater execution incentives and opportunities, offering 
additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because it 
applies uniformly to all Members. While the Exchange has no way of 
knowing whether this proposed rule change would definitively result in 
any particular Market Maker qualifying for the proposed tiers, the 
Exchange anticipates that approximately one Market Maker will be able 
to compete for and achieve the proposed criteria of the Customer Cross-
Asset Tier; however, the proposed tier is open to any Market Maker that 
satisfies the tier's criteria. The Exchange believes the proposed tier 
could provide an incentive for other Members to submit additional 
liquidity on EDGX Options and Equities to qualify for the proposed 
enhanced rebates. To the extent a Member participates on the Exchange 
but not on EDGX Equities, the Exchange does believe that the proposal 
is still reasonable, equitably allocated and non-discriminatory with 
respect to such Member based on the overall benefit to the Exchange 
resulting from the success of EDGX Equities. Particularly, the Exchange 
believes such success allows the Exchange to continue to provide and 
potentially expand its existing incentive programs to the benefit of 
all participants on the Exchange, whether they participate on EDGX 
Equities or not. The proposed pricing program is also fair and 
equitable in that membership in EDGX Equities is available to all 
market participants, which would provide them with access to the 
benefits on EDGX Equities provided by the proposed change, even where a 
member of EDGX Equities is not necessarily eligible for the proposed 
enhanced rebates on the Exchange.
    The Exchange also notes that it does not believe the proposed tier 
will adversely impact any Member's pricing or ability to qualify for 
other tiers. Rather, should a Member not meet the proposed criteria, 
the Member will merely not receive the proposed enhanced rebate, and 
has five alternative choices to aim to achieve under the Customer 
Volume Tiers. Furthermore, the proposed enhanced rebate would apply to 
all Members that meet the required criteria under proposed tier.
B. Self-Regulatory Organization's Statement on Burden on Competition
    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe the proposed changes to the Customer Volume Tiers will impose 
any burden on intramarket competition. Particularly, the proposed 
change applies uniformly to all Members. As discussed above, to the 
extent a Member participates on the Exchange but not on EDGX Equities, 
the Exchange notes that the proposed changes can provide an overall 
benefit to the Exchange resulting from the success of EDGX Equities. 
Such success enables the Exchange to continue to provide and 
potentially expand its existing incentive programs to the benefit of 
all participants on the Exchange, whether they participate on EDGX 
Equities or not. The proposed pricing program is also fair and 
equitable in that membership in EDGX Equities is available to all 
market participants. Additionally, the proposed change is designed to 
attract additional order flow to the Exchange and EDGX Equities. 
Greater liquidity benefits all market participants on the Exchange by 
providing more trading opportunities and encourages Members to send 
orders, thereby contributing to robust levels of liquidity, which 
benefits all market participant. As a result, the Exchange believes 
that the proposed change furthers the Commission's goal in adopting 
Regulation NMS of fostering competition among orders, which promotes 
``more efficient pricing of individual stocks for all types of orders, 
large and small.'' \12\
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    \12\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    The Exchange does not believe that the proposed rule changes will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As previously 
discussed, the Exchange operates in a highly competitive market. 
Members have numerous alternative venues that they may participate on 
and direct their order flow, including 16 other options exchanges and 
off-exchange venues. Additionally, the Exchange represents a small 
percentage of the overall market. Based on publicly available 
information, no single options exchange has more than 15% of the market 
share.\13\ Therefore, no exchange possesses significant pricing power 
in the execution of option order flow. Indeed, participants can readily 
choose to send their orders to other exchange and off-exchange venues 
if they deem fee levels at those other venues to be more favorable. 
Moreover, the Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Specifically, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \14\ The fact 
that this market is competitive has also long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission, the D.C. 
Circuit stated as follows: ``[n]o one disputes that competition for 
order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S. 
national market system, buyers and sellers of securities, and the 
broker-dealers that act as their order-routing agents, have a wide 
range of choices of where to route orders for execution'; [and] `no 
exchange can afford to take its market share percentages for granted' 
because `no exchange possesses a monopoly, regulatory or otherwise, in 
the execution of order flow from broker dealers'. . . .''.\15\ 
Accordingly, the Exchange does not believe its proposed fee change 
imposes any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
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    \13\ See supra note 3.
    \14\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \15\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \16\ and paragraph (f) of Rule 19b-4 \17\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if

[[Page 58221]]

it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeEDGX-2024-042 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CboeEDGX-2024-042. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeEDGX-2024-042 and should 
be submitted on or before August 7, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15671 Filed 7-16-24; 8:45 am]
BILLING CODE 8011-01-P